Russ Roberts: You and I both now live in a country, Israel, that has a Socialist past, a very strong Socialist past, where the general outlook is you ask for permission, not forgiveness. And, yet somehow the Israeli venture scene and the startup scene is extraordinary. Do you find that strange?
Michael Eisenberg: Yeah. I actually have a slightly different perspective on that. Meaning, factually everything you said I think is correct. Which is: Israel has a lot of what I would call bureaucratic regulations and hoops you need to run through to get a lot of things permitted, but most of Israeli innovation and the startup scene comes out of the military. And, ironically, we have the least hierarchical military, I think, on the planet, where anyone can kind of speak up; and if you’re 22, you’re–forget that, when you’re 20–you’re commanding other people and expected to speak up to your commanders.
I teach some courses in the military here. I see it live where more junior folks in the room are encouraged to challenge other people. And, they’re taught this at a young age. And, the technology units in the military, they know the answer is not at the top: it’s most likely in the younger people. And they’ve kind of diffused that.
That was from the EconTalk episode, Start-Up Nation, Storytelling, and the Power of Technology. I think that distributed decision-making is critical to accelerating economic complexity. If Israel — a relatively small country at 9 million — finds decentralization useful then imagine the even greater importance decentralization takes on at the scale of the United States.
I’d like to find more resources on the Israeli culture and how it impacts their processes for military requirements, budgeting, and acquisition. Do they use the principles of socialist economic planning, like PPBE in defense, or do they simply have a lot of bureaucracy and redistribution?
By the way, to give a perspective on size, the Israeli military’s budget was roughly $18 billion in 2021 (converted from $58 billion sheckels). That’s probably not much more than the enterprise cost of the F-35 alone. In FY 2021, the all variants of the F-35 had nearly $13 billion in acquisition funding and perhaps another $4 billion in O&S — I’m making that O&S guess based on a GAO report from 2018 where F-35 total O&S was about $2.5 billion, but quickly growing with new deliveries. Operating and Support costs are harder to discern from the budget, but can be estimated using the services’ VAMOSC systems.
Here’s more from Eisenberg on the unique aspects of Israeli bureaucratic culture:
I think there’s an ethos–candidly, one I don’t like–but it is an ethos of: Can I get away with this? And, more often than not–because the other part of the Israeli bureaucracy is enforcement is terrible here–and so because of that, I can get away with a lot. So, people actually figure out their way around regulation and know they won’t get caught. And, that breeds an ethos also of rule-breaking.
… I think the military pieces is not just important because you take 18-year-olds and train them at the cutting edge of technology–which is what state complexes and militaries have access to. But, even more importantly, we’re forcing kids to sacrifice on behalf of something greater than themselves. And that creates an esprit de corps, that creates patriotism, that creates comradery and collaboration that I think is missing in a lot of places.
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